Finance Leasing Manual - FLM32.18

Negative depreciation

For periods before 1 April 1998 it should not be necessary to consider for the purposes of Paragraph 5 Schedule 12 FA 1997 whether negative depreciation, representing future rental income, is taxable as a trading receipt as it arises apart from Schedule 12 and therefore as 'normal rent' (see FLM31.24). This is because the leases to be considered will be either:

• those existing Part I leases (in practice most if not all) where rentals fall within the old Schedule A 'entitlement basis' and there is no argument at all for taxing negative depreciation as normal rent; or

• any other Part I leases where the rentals are trading receipts but the incoming represented by negative depreciation is likely to be eventually received in capital form ; or

• new leases where it will normally be common ground that negative depreciation is not taxable as normal rent (see the extract from Tax Bulletin reproduced at FLM32.19).